Friday Comments (Chart Book to follow)

April 4, 2025

Ladies and Gentlemen, we are witnessing history. A fast economic downturn in front of our eyes, triggered by dubious economic policies and laughable implementation. Is there a way back? I would hope so. Are central banks ready and willing to support in the absence of capable politicians? I’m not so sure.

This week has shown the extent to which the US administration is willing to go to push through their agenda. I wrote about it a week ago and provided my macro blueprint. You can find it below.

I frankly don’t know how things can pan out from here as there seems to be little willingness to change course. This makes it potentially even more dangerous, although I wouldn’t be surprised if Trump finds some appeasing words pretty soon. The market reaction, however, could surprise many. What’s worse than a strong vision which causes market turbulence is if the vision loses credibility. These are unchartered waters. Anything can happen.

And the Fed? I don’t envy their position. Thursday’s price action, however, should give them hope. Their favourite inflation gauge actually fell on the day, indicating that the market thinks that there will a very short-term inflation hump but followed by lower inflation going forward. 5-year inflation 5-year forward is now back at the September lows. This collapsed even more on Friday amidst the commodity rout.

It’s interesting to see that the early March probability for a May cut hasn’t yet been reached, indicating that the market still questions the Fed’s ability to ease proactively, even in an emergency. Below are May Fed Funds Futures.

Bonds are relentlessly bid. I picture says it all. The 10-year JGB yield looks rather impressive and leaves the August squeeze in its shadow.

The reaction in the Dollar caught many by surprise on Thursday, posting a candle of the size of the 3 big days in early March combined, which followed the European fiscal announcement. The question from here is whether further de-risking will show the upper “smile” of the US Dollar, given its safe haven qualities.

Even Gold couldn’t hold its weight given the turbulence. Unsurprising as it’s a very crowded trade amidst general de-risking.

If volatility explodes and market dislocations occur, systematic funds and those running fixed volatility / VaR targets will de-risk almost automatically. This will continue reverberating across markets for a while. If in doubt, reduce positions and always remain nimble. I write this before payrolls. Frankly, I don’t think the numbers will matter, but the skew is for more pain if it’s a softer print.

Our allocation model has been guiding us nicely through these turbulent times, eliminating equities in February and allocating to Bonds. Long may it continue. The updated allocation will be presented in ATW this weekend.

The trend and reversal models have been a blessing in these times, and I hope you all made full use of them. The recently launched intra-day model is helping those keen to take short-term opportunities in these volatile markets.

Here is a reminder that you can now also use my models in TradingView scripts, which I made available for subscribers to use on their charts. This is not for free and incurs an additional cost.

If you are interested, ping me an email with your TV username. Note that only paying subscribers will be granted access. No exceptions.

Let’s now go into more detail and read what Macro D has in store for us. I ran into technical difficulties producing the charts, so I will send them once this is fixed in a separate post.

Have a blessed and relaxed weekend.

Let’s go!